FTSE 100 was steady on Tuesday, pausing after sharp losses in the previous session, as gains in commodities stocks offset losses in banks, which were hit by downbeat comments by two ratings agencies and a sector downgrade by Nomura.
The benchmark index was down 0.67 points at 5,427.19 by 9:01 a.m., having fallen 1.8 percent on Monday.
The index is testing the 50-day moving average support level around 5,440, with a ceiling on any gain at the 200-day moving average around 5,630, Jimmy Yates, head of equities at CMC Markets, said.
With so much gloom around the pull seems to be on the downside...There appears to be little momentum among the bulls.
The mood darkened as ratings agency Moody's said it would review ratings of all EU member states in the first quarter of 2012, while rival Fitch said the summit had failed to provide a comprehensive solution to the debt crisis.
Banks again were among the top fallers as balance sheet concerns compounded by Europe's ongoing debt troubles continue to scare investors off.
Despite valuation support, the economic and sovereign outlooks provide headwinds, Nomura said in a note, in which the broker cut its pan European banking sector rating to neutral from bullish.
Short-term headwinds for the sector have increased sharply in 2H11. Policymakers have repeatedly failed to address the causes and concerns of the sovereign crisis, leading to much higher funding costs and forced deleveraging for the banking sector, a source of ongoing earnings risk.
Elsewhere, Whitbread fell 5.5 percent after Britain's biggest hotel operator said sales growth slowed in the third quarter as tough economic conditions kept customers away from its Premier Inn hotels and Costa Coffee shops.
The stock is not expensive ... However, we struggle to identify catalysts for outperformance, Panmure Gordon said, reiterating its hold recommendation and 1,800 pence target price on the stock.
Miners bounced following the previous session's falls, after Australia boosted the outlook for demand.
Australia lifted its forecast for iron ore exports by 2.4 percent to a record 460 million tonnes in 2011/12 as producers dig more mines to feed a growing hunger in China for imported ore to make steel.
Kazakhmys, Lonmin and Rio Tinto were all up around 1.4 percent.
Oil-related stocks were in demand too as investors' minds were focused on the sector by a note from Citigroup in which the broker raised its oil price expectations for 2012, forecasting Brent would trade in a range of $100 to $120 for the year.
Oil giant BP rose around 0.6 percent as Citigroup raised its target price on the firm.
Oil services firms were also higher, with AMEC up 1.2 percent, as Citigroup raised its rating on the company to buy from sell.
After lagging European oil services by 18 percent since August 23 and given the improved outlook for industry capital spend, AMEC now looks to offer a more compelling risk-reward proposition, it said.
Peer Petrofac was the top gainer on the FTSE 100, up 3.1 percent after upping its profit guidance for this year and saying a $10.6 billion (6.8 billion pound) order backlog gave it the confidence to predict strong growth in 2012.
Citigroup, however, warned it was not optimistic on oil demand growth going forward, and downgraded Royal Dutch Shell to neutral from buy on valuation grounds.
On the macroeconomic front British inflation figures will be released at 9:30 a.m., with inflation a major pressure on the economy.
November CPI seen up 0.2 percent on the month, after a 0.1 percent rise in October, giving an annualised increase of 4.8 percent, down from 5.0 percent in the previous month.
(Editing by Sophie Walker)